International Venture Capital Investment Continues Decline, Down 63% in Q2

LONDON and SHANGHAI -

- Dow Jones VentureSource: Non-U.S. Investment Falls to US$1.46 Billion, Lowest Since 2003; Europe Sees Record-Low Investment & Deal Count

Venture capital investments in the international markets continued to slow in the second quarter of 2009, according to new global data from industry tracker Dow Jones VentureSource. Investors put US$1.46 billion to work in 250 deals for emerging companies in Europe, Canada, Israel, China and India in the second quarter, less than the US$1.99 billion invested in the first quarter of 2009 and down 63% from the US$3.95 billion invested in 452 deals during the second quarter last year. This marks the lowest non-U.S. quarterly investment total since at least the height of the tech boom fallout in 2003.

“We’re seeing a clear trend indicating more later round deals as venture investors work to sustain their current portfolio companies,” said Jessica Canning, Director of Global Research for Dow Jones VentureSource. “As the IPO timeframe increases, investors are finding it more challenging to maintain their stakes in current investments.”

In the U.S., venture investors put US$5.27 billion into 595 deals, a noticeable improvement over the first quarter but still down compared to a year ago.

Investment in Europe* Lowest on Record

According to Dow Jones VentureSource, Europe garnered US$831 million (620 million euros) in 156 deals during the second quarter of 2009, down 47% from the US$1.58 billion (1.07 billion euros) put into 272 deals during the same period in 2008. This marks the lowest deal count and investment total for Europe since Dow Jones VentureSource began reporting on the region in 2000.

Like the U.S., Europe’s information technology (IT) industry is seeing the most significant declines. The industry suffered its worst quarter on record with US$287 million (214 million euros) invested in 72 IT deals in the second quarter, down 67% from the US$861 million (580 million euros) put into 144 deals last year. Within IT, the software sector fared the worst, attracting just US$83 million (62 million euros) in 24 deals, the lowest totals on record for the segment.

Investors put US$259 million (193 million euros) into 29 healthcare deals in the Europe region during the quarter, a 22% decline from the second quarter of 2008 when US$270 million (182 million euros) was put into 43 deals. Even Europe’s energy and utilities industry took a hit in the second quarter with investment declining 84% to just US$55 million (41 million euros) in 10 deals.

“Global investors are remaining cautious due to continued uncertainty with the economy,: added Ms. Canning. “Even the traditional sectors, like IT and HC, are not attracting as large a share of the overall investment as they once did.”

Deals Get Smaller Everywhere

According to the data, the size of venture deals fell throughout the world in the second quarter of the year. In Europe, the median size of a venture capital deal dropped 13% from the US$3.4 million (2.3 million euros) in the second quarter of 2008 to US$3 million (2.2 million euros) in the most recent quarter. In Israel, the median deal fell 32% in size from US$6 million a year ago to just under US$4.1 million in the most recent quarter. The median sizes of deals in India and Canada stood at US$4.2 million and US$3.2 million, respectively, in the first half of the year.

The median deal size in U.S. dropped 18% from US$8 million a year ago to US$5 million in the most recent quarter. In China, the median deal size stood at US$7.5 million after the first six months of 2009.

Further Country Perspectives; France, Switzerland See Growth - In the second quarter, the United Kingdom was the second-favorite destination for venture capital, behind the U.S. Venture capitalists put US$292 million (218 million euros ) into 41 U.K. deals, down 12% from the US$330 million (246 million euros) put into 77 deals during the same period last year. - In China, US$282 million went into 33 venture deals during the second quarter, an 80% drop from the US$1.39 billion invested in 76 deals during the second quarter of 2008. Notably, the country’s healthcare industry recorded another strong quarter with US$65 million put into six deals. - Venture investment in France rose 14% from US$184 million (124 million euros) invested in 50 deals last year to US$209 million (156 million euros) in 57 deals during the most recent quarter. - Israel-based companies garnered US$191 million in 37 venture deals, 67% less than the US$570 million invested in 62 deals during the same time in 2008. - In Switzerland, investors put US$92 million (69 million euros) into three large deals, a big increase from a year ago when only US$12 million (8 million euros) went into five deals. - In India, venture capitalists invested US$89 million in 12 deals in the second quarter, 66% less than the US$260 million the country garnered in 20 deals last year. - Capital investment in Germany dipped to US$66 million (49 million euros), down from US$496 million (334 million euros) a year ago. - Canada garnered US$65 million in venture capital with 12 deals completed in the second quarter, less than half the US$142 million put into 22 deals in the second quarter of 2008. - In Sweden, venture investment fell to US$50 million (37 million euros) in the most recent quarter compared to US$108 million (73 million euros) invested in the second quarter last year.

*All Europe investment figures based on weighted conversion rates of 1.48521 (2008) and 1.34017 (2009)

For more information or to arrange a personal demonstration of Dow Jones VentureSource, visit venturecapital.dowjones.com or call +1-877-633-8663 (in the U.S.) or +44(0)203-217-5176 (in Europe). You can follow exclusive reporting on this story at www.twitter.com/djventurewire .

The investment figures included in this release are based on aggregate findings of Dow Jones proprietary global research. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.

Copyright (c) 2009, Dow Jones VentureSource.

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Source: Dow Jones & Company

Adam Wade of Dow Jones & Company, +1-415-439-6666, adam.wade at dowjones.com